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ucanalways · Jan 25, 2010, 01:30 PM

Hello all,

I had to leave USA as I was terminated from my job during August 2009. I was in USA for 4 years, out of which 2 years on H1B visa in California. I had to terminate my 401k plan (got less than $100 in cheque after taxes).

In 2009, I was in USA was 7 complete months. I'm married. I've earned wages until July 2009. My wife is a home maker and doesn't have any earnings. Now, we are in another country, both working. Since I'm outside USA now, I'll be using online tax filing services to file my taxes and hopefully get a refund via direct debit. This being the case, I have few questions.

1. Since I no longer live & work in USA, am I eligible to file taxes in USA? I personally like to file taxes as I know I would get some money back which would be really helpful for me!
2. Which forms to fill? 1040 for federal and 540 for state?
3. Should I declare my present earnings (after Aug 2009 earned in present country - not USA) as foreign income? Please note, I won't be returning to USA in future (unless I get another job or I intend to pursue my higher studies), so I guess I don't need to declare my present income (earned after Aug 2009 in a different country). Please advise.

Thanks a bunch,
Kevin.

ucanalways · Jan 25, 2010, 01:33 PM

Also, just want to add:

I'm planning to use the "Married filing jointly" option. I have SSN and my wife has ITIN. Hope it's a sensible option. Please advise.

Thanks again,
Kevin.

ucanalways · Jan 27, 2010, 02:13 PM

Can someone please shed some light on this, please? Atlantataxexpert and/or MukatA, your opinion would be much appreciated.

Thanks!
Kevin.

MukatA · Jan 28, 2010, 12:31 AM

1. You must file tax return and report even your 401K income. Attach From 5329.
2. Actually for 2009 you are dual status. But you can file joint return as residents for full year. Report your worldwide income for 2009.
For foreign earning file From 1115 and or Form 2555. Your U.S. Tax Return: U.S. Citizen or Resident with Foreign Income

If you do not want to report foreign income, file dual status tax return-- resident up to August 2009 and nonresident after that. On dual status return, you do not get standard deduction.

ucanalways · Jan 28, 2010, 02:18 AM

MukatA,

Thanks for your reply.

1. Got an idea of it. Thanks.
2. I don't see anything listed on Form 1115 in "Your U.S. Tax Return: U.S. Citizen or Resident with Foreign Income" link you provided me. Is it form 1115 or Form 1116?

If I file dual status tax return, can I still file a joint return? Please clarify.

Thanks,
Kevin.

MukatA · Jan 28, 2010, 05:07 AM

Yes, it is Form 1116 Foreign Tax Credit.
You will get better return if you file joint return.
For Dual status info-- IRS Publication 519. U.S. Tax Guide for Aliens

ucanalways · Apr 4, 2010, 05:21 PM

MukatA,

Since I left USA only by first week of Aug'09, I don't qualify for the bonafide residence test or physical presence test. So, I'm unable to complete 2555-EZ. So, does this imply that I don't get exception for my foreign income? (listing foreign income in brackets in line 21 of form 1040). Please let me know.

Thanks,
Kevin

MukatA · Apr 6, 2010, 05:45 AM

You can meet physical presence test of 330 days. Days can be from Aug 2009 to 2010. File for extension. File return after you complete 330 days or use Form 1116.

ucanalways · Apr 7, 2010, 02:41 AM

That's interesting to know. I was thinking that physical presence test should include 330 days in that tax year (2009) and never knew that it is 330 days before the date of filing taxes (in the next tax year - 2010).

I was using turbotax yesterday and foreign tax credit section was listed under itemized deductions. I chose standard deduction over itemized deductions as it gives more deduction. This being the case, can Form 1116 be used if I claim standard deduction (~$10,900 - if I remember right)? Please let me know.

Also, if I owe IRS (federal) or CA (state) money instead of a refund, can I still file for an extension?

Thanks,
Kevin.

MukatA · Apr 7, 2010, 06:29 AM

You can claim foreign tax credit even when you get standard deduction.

ucanalways · Apr 7, 2010, 02:05 PM

Thanks, MukatA.

I've decided to file an extension because, without exclusion I owe tax to IRS (federal). When I exclude foreign income, I get a refund.

Couple of questions:

1. Should the refund amount (difference between values in line 5 & 4) in form 4868 be same as the refund I claim later in my extension? I fear it may differ but it should still remain as a refund and not owing money to IRS (hopefully).

2. Since I get a refund for California, I get an automatic extension, which is good. Would I file 540-NR or Schedule 540 CA form?

Please clarify.

Thanks,
Kevin.

AtlantaTaxExpert · May 6, 2010, 02:05 PM

Kevin:

You CANNOT use the Foreign Earned Income Exclusion (Form 2555), because, to use the exclusion, you must be either a U.S. citizen or a resident alien at BOTH the beginning and at the end of the exclusion period. You do NOT meet the end requirement.

Model the return as a dual-status and as filing jointly with your wife and using Form 1116 to claim the Foreign Tax Credit. More than likely, filing jointly is the best way to file, but perhaps not. That is why the modeling is needed.

Note that you also must submit a Residency Termination Statement with your return to tell the IRS that you are no longer a resident alien.

If you need professional help, email me at [email protected].